Toshiba selects Bain-led group for chip unit sale, looks to get out of debt by next March

Toshiba Corp. said Wednesday it has decided to sell its chip unit to a Japan-U.S.-South Korea consortium for around ¥2.4 trillion ($21 billion), rejecting a counterbid from its longtime partner Western Digital Corp.

Toshiba made the decision at a board meeting to sell Toshiba Memory Corp. to the consortium led by U.S. fund Bain Capital that it had signed a memorandum with last week to speed up talks on the sale. Toshiba will negotiate exclusively with the group to quickly seal a deal.

Toshiba said the chip unit selloff would improve its balance sheet by some ¥740 billion, making it possible for the firm to get out of debt by the end of next March.

The consortium also includes the state-backed Innovation Network Corp. of Japan, the Development Bank of Japan, South Korean chipmaker SK Hynix Inc. and four U.S. technology firms — Apple Inc., Dell Inc., memory product maker Kingston Technology Corp. and data storage company Seagate Technology.

Toshiba is selling Toshiba Memory to make up for the huge losses stemming from its now-bankrupt U.S. nuclear unit by next March and avoid reporting negative net worth for a second straight year that would see it face delisting from the Tokyo Stock Exchange.

The decision comes after board members also considered a revised offer made at the last minute by a group led by Western Digital, which jointly invests in Toshiba’s Yokkaichi flash memory plant.

While some board members had apparently expressed support for Western Digital’s proposal, it was eventually rejected as many in the company could not overcome their distrust of the U.S. firm following a legal dispute between the two companies over the sale of the chip unit, sources said.

Ties between the two companies had soured after Western Digital took Toshiba to court claiming that the unit’s sale without its consent would breach their joint venture contract.

The main focus of talks between Toshiba and the Japan-U.S.-South Korea group had been how to handle the legal challenges posed by Western Digital.

In its offer, the group said that Bain Capital and SK Hynix would shoulder costs to settle the legal dispute with its longtime partner, the sources said.

The consortium and Toshiba also agreed to keep the ratio of SK Hynix’s voting rights low in the chip unit in the future in order to avoid antitrust issues.

The group also made a proposal that the INCJ and DBJ would invest in Toshiba Memory once the legal dispute is resolved, while Bain Capital and others in the group would pay for the investment by the two Japanese entities.

But Toshiba still needs to figure out ways to quickly reach a settlement with Western Digital, as the sale could still be blocked if the legal spat continues.

In its last-minute offer, the Western Digital-led group said it will give up seeking voting rights in the chip unit after initially demanding more than one-third of the rights to gain veto power, the sources said.